Yahoo may be a candidate for buyout if ad strategy fails

ANDREW LECKEYThe Baltimore Sun

As a shareholder in Yahoo Inc., can I realistically expect things to get any better?

-- C.G., via the Internet

Time might not be on Chief executive Jerry Yang's side.

The Yahoo founder who took the top position in June when Terry Semel stepped down must quickly enact an effective strategy to revive advertising growth. Otherwise, the company could wind up a buyout candidate.

Shares of Yahoo (YHOO) are down 11 percent this year after a decline of 35 percent last year; shares are barely above their level at the end of 2003. The company is beset by fierce competition.

Of the $21.7 billion that U.S. advertisers are predicted to spend online this year, Yahoo is projected to hold 16 percent, while Google Inc. will have 27 percent, according to eMarketer.

Similarly, Yahoo accounted for 22 percent of U.S. Internet searches in July, compared with Google's 64 percent, according to Hitwise.

Second-quarter net income at Yahoo was down 2 percent, and the company lowered its earnings guidance for the year.

Nonetheless, Yahoo remains one of the world's most popular Web destinations, claiming 500 million unique visitors a month. It recently captured top spot for the first time in the University of Michigan's Customer Satisfaction Index report on electronic-business Web sites. On a 100-point scale, it had 79 to Google's 78.

Yahoo's large user and technology bases are attractive to content providers, while Web mail and stock portfolio information help to tie customers to the firm. There is cash to spend on stock buybacks, acquisitions or content.

It spent $700 million to buy Right Media Inc. to help it sell more Internet ads emphasizing graphics. In display ads, its SmartAds, which change hue and design, are expected to contribute to results, and its Panama search advertising system had financial gains in the second quarter.

Straddling the many positives and negatives of Yahoo, consensus rating on its shares is between a "buy" and "hold," according to Thomson Financial. That consists of four "strong buys," 17 "buys," 21 "holds" and one "sell."

There has been takeover speculation because of the low stock price, but Yang expresses no interest in giving up the firm's independence. Rupert Murdoch's News Corp. reportedly offered to swap its social network site My Space for a 25 percent share in Yahoo.

Earnings are expected to decline 19 percent this year, compared with the 27 percent increase forecast for the Internet information providers industry. Next year's estimate of a 36 percent increase compares with 14 percent projected industrywide. The five-year annualized return is 22 percent versus 14 percent for its peers.

What do you think of Hartford Capital Appreciation Fund? My financial adviser says it has had good results.

-- P.K., via the Internet

This fund travels to the beat of a different drummer, and that has produced impressive results.

Bold portfolio manager Saul Pannell says his strategy is not to have a strategy. He buys any kind of stock he fancies, in any style, size or industry that to him seems 25 percent undervalued. Sometimes that means investing heavily in themes, most recently alternative energy and foreign stocks.

The $18 billion Hartford Capital Appreciation Fund (ITHAX) is up 17 percent over the past 12 months to rank in the top 8 percent of large growth and value funds. Its three-year annualized return of 19 percent places it in the top 2 percent.

"We recommend this as a core fund you can build a portfolio around but that won't operate as a lot of other large blend funds will," said Todd Trubey, analyst with Morningstar Inc. in Chicago.

"It does have high manager risk, because if Pannell ever leaves for any reason, the argument that this fund is spectacular isn't as strong."

Pannell has been in charge since the fund's inception in 1996 and has more than $1 million of his personal assets invested in various Hartford funds.

Believing that environmentally friendly energy's time has come, the fund has added stocks such as the nuclear power firm British Energy, solar power company SunTech Power and water-services firm Veolia Environment to its portfolio.

"If you aren't working with a financial adviser, this is a 'load' fund, so it's not for you," Trubey said. This 5.5 percent load (sales charge) fund requires a $1,000 minimum initial investment and its annual expense ratio is 1.17 percent.

I'm switching jobs for the first time. How do I take my 401(k) with me to my new employer?

-- M.R., via the Internet

If a direct plan-to-plan transfer is your goal, it makes the most sense to leave the money with your previous employer until you are settled into your new job and are able to open a 401(k) with your new company.

Your time of eligibility at the new employer will vary, but many large companies are allowing immediate 401(k) participation. In addition, some firms permit employees to roll money into an existing account even before they are eligible to participate in its plan.

"Talk to your new human resources office about its process for rolling over balances from previous employer plans, which varies somewhat but universally requires communication with the prior employer," said David L. Wray, president of the Profit Sharing/401(k) Council of America in Chicago.

The check from the previous 401(k) plan should be written to the new plan to avoid the 20 percent income tax withholding, Wray said.